How to secure radical innovation with a portfolio approach

There are many ways companies can accelerate and boost their innovation ventures in order to thrive in their "day after tomorrow." The success of each approach will always depend upon its match with the size, culture or structure of the organization. Some seclude their innovation teams to protect them from corporate suffocation. Others use short but highly inclusive sprints to make sure that the entire organization is involved. And a growing group of industry leaders co-create the future with their customers. But one of my favorite experiments out there – and certainly one of the most radical ones of recent years – is Google re-organizing its entire corporate structure under the umbrella company Alphabet Inc.

The move from Google to Alphabet is anything but a simple name change. It’s a very clever portfolio exercise for the day after tomorrow, creating a new holding company that is composed of very independent operating units, each with a separate and strong management. There has been much speculation about Google’s motives for this extreme move. Some say the new organizational structure has been created to keep nurturing and attracting the best talent on the market. Others that it had to do with providing clarity to investors. But I believe that the main reason is that even Google – by many perceived as the epitome of organizational agility – had to come to terms with the fact that it was not immune to the impact of its rapid growth. Or as Larry Page wrote in a memo explaining the move: “As you ‘age’ — even when you’re still a teenager like Google — you have to work hard to stay innovative.”

Google realized that it had become too big to stay as fast, open and pioneering as ever. Like with any other large company, some parts had logically become "solid." These older and very lucrative parts – like search, advertising or Google Maps – are all about optimizing operations, implementing lean strategies, consolidating structures or streamlining processes. About efficiency and revenue. Its advertising business, for instance, amounted to about $67 billion in 2015. There is nothing wrong with organizational solidity, obviously. If anything, it is needed to generate cash to invest in radical day after tomorrow experiments. But other parts of the organization have to remain fluid and "untouched" by the solid parts, if a company is not to become rigid and die.

When "A One Size Fits All" Approach Won't Do

Google obviously has fluid and even superfluid parts – like its secret research lab Google X – which are still scaling. What’s fascinating is how Google realized that if it wanted to maintain this enormous potential for the future, a "one size fits all approach" would not do. And that’s why Alphabet was created: a portfolio of superfluid, fluid and solid parts of the organization which are kept at a safe distance from one another. Because the capabilities, processes and structures needed by the (super)fluid and solid parts are so different that they antagonize each other if they overlap and intermix.

Alphabet is an impressive exercise to keep the exploiting and exploring parts of Google at a fruitful distance from one another. Google’s root businesses – search, advertising, Google Maps, YouTube, Chrome and Android – are parked under Google Inc. But the radically innovative and superfluid ventures fall under the larger Alphabet umbrella and are separated from Google Inc.: like Google X (the research and development facility), DeepMind (the AI division) or Verily (where they are reinventing the world of healthcare). The same goes for the fluid parts, like Google Ventures which is looking at the next new technology on the horizon. Each part is managed very similarly to how a venture capitalist would cope with a portfolio of investments. That’s a really interesting approach.

Culture Is Key

Now, to have this kind of restructuring and separation of the different parts of the organization work successfully, one component is absolutely essential: culture. Everybody at Google and now Alphabet clearly feels the same engagement and purpose. They feel that they are part of the one company and share the same culture. These very powerful shared values are what allows far-reaching autonomy for the divisions without losing the interaction between the parts that is necessary for survival. Alphabet has successfully created this very difficult balance between belonging and feeling that you are part of something but, at the same time, admitting that there are clear differences between the superfluid, fluid and solid parts of the organization.

Google is one of the first companies to leverage this kind of portfolio structure in such an extensive manner. But I’m sure that many companies – wanting to secure their day after tomorrow ventures while at the same time leveraging their today and tomorrow revenue – are going to follow their example.

This article is part of a series about how organizations can survive their day after tomorrow by focusing on radical innovation. Read part 1, part 2, part 3, part 4 and part 5.